BT takes a £340m hit over Global Services problems

More bad news for the telecoms giant's IT services arm

BT Global Services is suffering

BT is taking a £340m hit in its forthcoming financial results because of the problems in its Global Services division.

In a trading update ahead of the group's third-quarter results announcement next month, BT chief executive Ian Livingston announced that a financial and contract review in the troubled IT services arm of the company will lead to the £340m one-off charge.

The telecoms giant gave a profit warning in October last year due to poor performance at BT Global Services (BTGS), and also announced the resignation of the division's chief executive, Francois Barrault. Days later, the firm revealed that it was cutting 10,000 jobs.

BTGS is expected to report year-on-year revenue growth of 15 per cent and pre-tax profit of £17m, before the one-off charge is taken into account.

"The first job of the new management team in Global Services and the new group finance director has been to review the financial position of Global Services and its major contracts," said Livingston.

"These ongoing reviews reflect changed circumstances and a more cautious view of the delivery of cost efficiencies and contract performance, particularly in light of the current economic climate.

"We have also initiated a review of Global Services' operations which will help us drive our cost savings initiatives and further enhance our ability to serve customers.

"The performance of the rest of the group is ahead of expectations for the third quarter, but unfortunately this will be more than offset by the issues in Global Services."

The firm said that the contract reviews at BTGS involve a "reassessment of the estimates and assumptions associated with certain major contracts".

BTGS is a major supplier to the troubled NHS National Programme for IT and is responsible for a major project to introduce summary care records that is running years behind schedule.

The contracts for the National Programme were mostly negotiated on a payment-on-delivery basis that could mean suppliers committing significant amounts of time and effort on a project without receiving any payment until it is complete.

Accenture and Fujitsu Services both pulled out of their deals with the NHS due to concerns over the contractual terms.